How to Become a Landlord
Choosing the path of becoming a landlord is an excellent option for generating an additional stream of income. However, you need to ensure you’re up for the required tasks in order to provide the mandatory services of being a landlord.
There are several aspects and skills that need to be considered when it comes down to how to become a private landlord. You’ll need to learn marketing, legal regulations, and how to screen tenants.
Many of the tasks associated with being a landlord can be outsourced to property management companies. But, if you’re still asking, “what do I need to do to become a landlord?” keep reading.
We’re going to answer what do you need to become a landlord and provide a wealth of information on becoming a landlord.
How to Become A Landlord: A Step by Step Guide
Learning how to be a landlord can involve several steps. Which of those steps you need to take will depend on what you hope to achieve.
If you’ve inherited an additional piece of property, it may not generate enough income to let you quit your day job. If this is the case, choosing a property management company may be the best solution to free you from the responsibilities of finding tenants and maintaining the unit.
Conversely, you may be looking at starting an entire business. Learning how to become a landlord is critical to the success of this type of endeavor.
So, what do you need to do to become a landlord? Here are a few of the most frequent questions you need to ask yourself to see if you have the skill and time to commit to becoming a landlord.
Do You Have the Disposition for Being a Landlord?
Being a good landlord that doesn’t suffer from constant tenant turnover requires a certain amount of grit and rapport. When the economy turns against you, stress levels are bound to rise.
You will need the subsequent grit to endure a situation such as a market crash. During these times, tenants may need to extend their rent’s due date, which could impact your own bills. This is when building rapport comes into play.
You don’t want to drive away a good tenant who finds themself in hard times, but you need to firmly express that debts need to be paid. Without tact, you can end up with an empty unit.
It’s during these periods that if you have to let go of a tenant, you may experience grueling long periods of vacancies. This, in turn, could make your asset a liability.
Maintenance and Repairs
If you’re scouring through lists of ‘what do you need to be a landlord,’ you’ll know that sometimes things break, and more often than not, it’s your responsibility to repair it.
For those who take a hands-off approach and retain a property management company, that company will handle the emergencies and send a contractor to complete the job. If you’re opting to be your own boss, you may have to get your hands dirty and your tool kit out.
As the landlord, if an A/C unit becomes kaput due to normal wear and tear, it’s your duty to have it fixed or replaced in a timely manner.
Own a Rental Investment Property
The only truly necessary component of how to become a landlord is to have a place to rent out. Unless you already own a house or apartment that can be used as a rental unit, you’re going to have to search the market for a suitable property.
When choosing a rental unit, consider the:
- Rent rate
- Property taxes
- HOA or Apartment Association Fees
All of these factors impact your potential bottom line. If you find a potential rental unit that costs $100,000 but at the end of the year, you net only $4,000 due to fees and bills, it may not be the best use of your money. This is particularly true if marketing, screening tenants, and maintaining the unit takes a great deal of time out of your life.
It may seem wise to purchase a property near your location. However, this may not always be the best investment. While it will allow you to personally oversee the day-to-day tasks, these can be easily outsourced to a property management company that has expertise in this field.
If this is your first time becoming a landlord, you may want to consider a small apartment unit, as there will be less maintenance involved than with a house. Also note, that while a nice-looking place is easier to fill, you don’t need it to be your dream home. It’s an investment, not a place for you and your family to live day to day.
Crunch the Numbers
As stated previously, the goal of learning how to become a landlord is to make a profit. Before you place an offer on a place, you’ll want to figure out if it’s worth it at the end of the day.
To do this, you need to calculate the capitalization rate (cap rate.) The cap rate is used to determine a house or apartment’s potential profitability in its local market.
To calculate the cap rate, you need to approximate your potential net gain from rent and divide it by the purchasing price. However, this is only the first step in figuring out your possible ROI.
You will then need to factor in the mortgage, which at first may exceed the rent you receive. Then you need to account for any fees and expenses, such as property tax and insurance, noting that both will be higher than your primary residence.
Learn the Legal Regulations Surrounding an Investment Property
Being a landlord means understanding the federal and local landlord-tenant laws.
During the tenant screening process, there are specific questions you can’t ask and certain factors that can’t be accounted for when turning down an application. This means that you can’t discriminate based on:
- Physical / Mental Disability
- Familial status
When it comes to how to become a landlord, you will also need to learn the various laws surrounding access to the property, eviction notices, and issues concerning the security deposit.
Marketing Your Rental Property
After you’ve found a rental property that makes financial sense for you and brushed up on landlord-tenant laws, it’s time to market the property and find potential tenants.
Marketing a rental unit is more of an art than a science. To successfully pull in a vetted demographic, you will need to:
- Take and edit professional-quality photos of the property
- Write a compelling listing that offers a thorough overview
- Place the listing on various online and offline platforms
- Deliver roll-out incentives
- Host an open house
Once potential tenants have had their eyes on the property, and you start receiving applications, it’s time to start a thorough screening process. For some, this may be the most challenging part of becoming a landlord.
Every screening begins with a background and credit check to ensure you know who you’re dealing with and if they have a baseline of historically paying their bills on time.
You will then need to start contacting each applicant’s references. Starting with former landlords and employers will allow you to gauge their opinion of the potential tenant.
If the applicant has a stellar record and received rave reviews, it’s time to move on to a face-to-face interview. This part of the process will determine if there’s glaring issues that may have been omitted during the previous steps. Keep in mind the anti-discrimination list detailed above.
Your decision on whether to move forward should be based on the applicant’s ability to pay on time and maintain the property.
Write A Lease
If you’ve found a tenant that fulfills all of your criteria, you can draft up a lease agreement. You can find
several examples from a multitude of online resources. However, you will have to tailor one to fit your specific needs. For instance, will your rental unit be pet-friendly, and if so, are there any restrictions that need to be followed?
Regular Inspection of the Property
Either you or your property manager needs to check the rental unit regularly. Keep in mind that under landlord-tenant laws, you will need to inform the tenant before checking on the property.
The lease agreement should indicate how frequently these checks will occur. They shouldn’t be so frequent as to become a nuisance to the tenant. However, if you notice something that needs to be addressed that has deviated significantly from the move-in condition when the tenant first entered, you should give them time to remedy the situation.
Maintain the Books
Once again, if you’re learning how to become a landlord, this is ultimately a business. You need to maintain proper bookkeeping. Every dollar out and dollar in needs to be accounted for, as you’ll have to submit this information to the IRS.
Hiring a Property Manager
Many of the aforementioned tasks can be easily assuaged by taking on a property manager. While one does come at a price that will affect your bottom line, it’s a service that many rely on to turn an active income into a passive one.
Hiring a property manager means they will take over duties that include:
- Marketing the property
- Screening tenants
- Offering 24/7 emergency services
- Collecting and depositing rent
Before you select a property manager, ensure that you are clear about what services they will provide and cross-check them with references. Also, check that they are familiar and accustomed to working with your property type. If you have a multi-unit complex, having an experienced property manager on hand can be the difference between a successful business venture and a nightmare.
Contact AAOA to Maximize Your Investment
Learning the intricacies of how to become a landlord can be taxing. Thankfully, you can count on the American Apartment Owners Association. We make the day-to-day property management process a breeze. Contact us today to learn how our range of property management tools can help you achieve your landlord goals.